U.S. Economy Shrinks 3.8% in 4Q, and Stats Show Worst Isn’t Over

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By Mike Caggeso Associate Editor Money Morning

The U.S. economy shrank 3.8% – less than forecast – but still the biggest gross domestic product (GDP) slide since 1982.

For 2008, GDP rose 1.3%, the slowest pace since 2001's 0.8% growth.

Most of the grim indicators of the third quarter – during which the economy shrank by 0.5% — deepened in the fourth. The largest contributors to the downturn were a continued fall in exports and a much larger decrease in equipment and software.

Overall consumer spending – which accounts for two-thirds of the economy – slouched 3.5%, a slight improvement from the 3.8% drop in the third quarter. Spending on durable goods such as cars and furniture fell 22.4%. Business investments fell 19.1%, the steepest drop since 1975.

Joel Naroff, president of Naroff Economic Advisors, Inc., is optimistic, but warned first quarter GDP could be just as bad. Stats could start turning around in the spring or early summer, when confidence stabilizes and the low levels of consumer spending begin rebounding, he said.

"The nuclear winter didn't happen but let's not celebrate," Naroff wrote in a note to clients. "Whether battered investors see it that way is a different question. They may need clear indications of a turn before they start coming out from their shells."

[…] domestic economy contracted at its fastest pace in almost 27 years as U.S. gross domestic product (GDP) plunged by 3.8% in the fourth quarter. Again, the eternal optimists claim that most analysts were expecting a decline in excess of […]

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